Category: Valuation

“Build a better mousetrap, and the world will beat a path to your door,” wrote Ralph Waldo Emerson more than a century and a half ago. He forgot to mention that if you did not patent your idea, many would copy it, have it built cheaply offshore, and probably drive you to bankruptcy. More than 4,400 patents have been awarded by the US Patent and Trademark office for variations of a mousetrap alone! In fact, according to the Smithsonian, more patents have been awarded for a mousetrap than any other [Read More]

The $3.4 billion uber-valuation that Uber – the on-call taxi and limo service – received recently in its latest round of financing has eyes popping and tongues wagging. Uber is expected to reach revenue of $125 million in 2013, implying a valuation of almost 30 times revenue. A number of other taxi-hailing startups such as Lyft and Hailo are also revving their engines to get into the highly regulated livery service business. Economists tell us that valuation bubbles happen periodically. The Internet Era has shortened the time between the occurrences [Read More]

In a recent post, Breaking Up Is Hard To Do, we talked about the problems that arise when owners of a small business don’t plan for the eventual change of ownership that always happens. In that article, we discussed the two owners of an 8-year old successful business. The owners were unable to agree on the value of the business when one of the owners wanted to buy out the other. We talked about the need for partner-owners to create a buy-sell agreement early in the life of the business [Read More]

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” Many entrepreneurs stumble at this point, losing the deal or most of their ownership, by having no answer, saying “make me an offer,” or quoting an exorbitant number. I’ve written about this before, but it’s a mysterious subject, and I’m always learning more. This time I’ll use a hypothetical health-care web site company named NewCo as an example to illustrate the points. Two founders have [Read More]

We can measure success in many ways. In business, one important measure is the value of the company. That’s because a company’s value is a composite of all of the quantitative and qualitative factors that comprise a company: revenues, expenses, risks, growth prospects, quality of the management team, competitive advantages, strength of the intellectual property, and so forth. In general, we want to do the things that increase the value of the business, and we want to avoid doing the things that reduce it. The problem is that we often [Read More]

Valuing a business is always an imprecise science, even with large-cap public companies. For example – Is the true value of a large public company based on its market price? It’s book value? It’s potential worth if broken into parts that have more perceived value than the whole? The answer is that there are many ways to determine the value of a company. Perhaps the best way to understand the “value” of any business, large or small, is to look at who’s doing the valuing and for what purpose. For [Read More]